🎯 Project Aim
Long Form Confirmation (LFCs) are agreements that can be set up quickly to enable the execution of a trade with a new counterparty, without the need to wait for the creation of the official ISDA Master Agreement and Credit Support Annex.
These agreements are typically set up to incorporate a single transaction; however, historically, they have not fed into Risk Systems, Calculations and Processes. Under derivatives regulations such as the U.S. Dodd-Frank Act or the EU’s EMIR framework, swap dealers are subject to strict margin requirements when engaging in over-the-counter (OTC) derivatives transactions.
One key obligation is the exchange of Variation Margin (VM), which is collateral posted and received daily to reflect changes in the mark-to-market value of a swap. As Long Form Confirmations are not yet feeding into the exposure and metric calculations, there is no accurate calculation reflecting the Netting (of the legs of the transaction), or any Collateralisation (e.g. for the exchange of VM).
The project aim is to ensure that we correct identify and tag trades sitting within LFCs, and then ensuring that exposures and metrics are calculated appropriately addressing the weaknesses explained above.
These agreements are typically set up to incorporate a single transaction; however, historically, they have not fed into Risk Systems, Calculations and Processes. Under derivatives regulations such as the U.S. Dodd-Frank Act or the EU’s EMIR framework, swap dealers are subject to strict margin requirements when engaging in over-the-counter (OTC) derivatives transactions.
One key obligation is the exchange of Variation Margin (VM), which is collateral posted and received daily to reflect changes in the mark-to-market value of a swap. As Long Form Confirmations are not yet feeding into the exposure and metric calculations, there is no accurate calculation reflecting the Netting (of the legs of the transaction), or any Collateralisation (e.g. for the exchange of VM).
The project aim is to ensure that we correct identify and tag trades sitting within LFCs, and then ensuring that exposures and metrics are calculated appropriately addressing the weaknesses explained above.
👥 Stakeholders
Credit Risk, Global Markets, Legal, Collateral Management, Model Valiation, Quants, Regulatory Liaison
❗Why It’s Important
Exposures and metrics for LFC trades are currently calculated without netting or collateralisation, which result in elevated calculation outputs.
By correctly tagging LFC trades with the LFC agreement, and relevant terms, the calculation engines can correctly calculate exposures incorporating the netting of legs, and collateral received from the client, to reduce our overall exposures, and capital requirements.
By correctly tagging LFC trades with the LFC agreement, and relevant terms, the calculation engines can correctly calculate exposures incorporating the netting of legs, and collateral received from the client, to reduce our overall exposures, and capital requirements.
✅ Benefits
Reduction in the calculation of exposure for LFC agreements, accounting for Netting and Collateralisation.
Multiple other benefits relating to the enhanced ability to identify LFC transactions (e.g. regulatory reporting).
🛠️ Tools Used
SQL | Excel | Confluence | JIRA
🧩 My Role
Risk Lead Business Analyst:
- Collaborate with Global Markets, Legal and Collateral Management to propose a high level flow across systems for LFC agreements
- Discuss internally within Risk the requirements to fit into the overall project proposals (consume enhanced feed from source systems, enhance the legal agreement population process in the database, details for our calculation engine to consume the enhanced LFC trade population
- Wrote the Business Requirements documentation for the end-to-end Hedge Framework process in Confluence, that were then converted to Functional Specifications in JIRA
- Perform QA checks on each development step, to check that delivery passes the defined Acceptance Criteria
- Presentation of delivered output, with explanations, to Credit Risk, and GM, for approvals, ahead of release
- Documentation of the process for Production Support to inherit the process for ongoing BAU